As growers in the developing world go out of business, fears are growing for the stability of some small economies dependent on the crop
Jamie Doward, The Observer The Guardian 11 Oct 09;
It started as a skirmish between supermarkets, of interest only to those in the grocery trade. But Asda's decision to repeatedly slash the price of its bananas now threatens to undermine the fair trade movement and spells catastrophe for those who work in the industry, according to leading organisations representing fruit growers.
Renwick Rose, the chief executive officer of Winfa – the Windward Islands Farmers Association, whose 4,000 banana farmers export almost exclusively to Britain, has described the price war as "a scandalous way of doing business at the expense of farmers" and warned it will plunge banana growers into a "race to the bottom" that will benefit no one in the long term.
He was speaking after Asda cut the price of its loose bananas to 38 pence a kilo, its sixth cut in six weeks and a move that placed acute pressure on rivals to follow suit.
In a sign that the price war is spreading, European giants Aldi and Lidl have also drastically slashed the price of their bananas, something that will have disastrous consequences for growers in the medium to long term, according to the Fairtrade Foundation which guarantees to buy the fruit at an agreed price from banana farmers.
"Price cuts serve only to devalue bananas yet further, creating a false illusion among shoppers that they can be sustainably produced for such give-away prices," said the Foundation's Barbara Crowther.
That the banana – Britain's most popular fruit – finds itself on the frontline of a supermarket turf war is nothing new. With more than 140 million of them eaten each week in the UK, bananas are supermarkets' best sellers after lottery tickets and petrol. For this reason, changes in their price, as with other staples such as bread, milk and baked beans, are keenly noticed by consumers.
UK sales have risen by some 150% over the past 17 years, but the massive increase in the volume of bananas flooding into the country has brought with it deflationary price pressures. Four years ago the price of loose bananas fell below 84p a kilo, down to as low as 67p a kilo, before clawing back up to about £1 last year.
But the scale of the price slashing by the supermarkets this time represents an unprecedented and possibly devastating blow for the industry. It could not have come at a worse time for the growers. Banana farmers in Africa, the Caribbean and the Pacific are currently begging the European Union to increase a potential €100m bailout to €500m claiming the soaring prices of pesticides, fertilisers and oil, as well as a spate of storms, have left them nursing significant losses that threaten to put them out of business.
No wonder Rose is a worried man. Charged with promoting the interests of Fairtrade banana producers in Dominica, St Vincent, St Lucia and Grenada, he has a big job on his hands. Since 1992 some 20,000 of the 24,000 farmers in the islands have gone out of business. Now the future for its remaining farmers looks bleak.
Already in the past year, before prices fell off a cliff, Dominica saw a 50% reduction in the number of farmers exporting Fairtrade bananas to Britain while the number in St Vincent has declined by more than 30%.
"The prices are ridiculous, it almost makes a nonsense of the concept of trade," Rose said contemptuously. "I don't know if that price [Asda's] can even cover the cost of transportation."
It is not just the farmers who will lose out if the islands' banana industry collapses. In the Windward Islands, bananas pay for schools, buses and crucial infrastructure. They have no plan B.
Asda and the other retail giants insist their suppliers will not take the hit – and that the real winner in this battle will be consumers. Alex Brown, Asda's produce director, said: "We're footing the bill so we can guarantee the move won't have any impact on the price we pay our suppliers, and any other retailer following our lead should make that same commitment."
But the complex economics that underpin the banana trade suggest in the long term both small and large scale banana growers could suffer from a price war.
The timing is significant. In January the supermarkets will agree new contracts with their suppliers. Given the historically low prices at which the big chains are now selling bananas, they are likely to demand hefty cuts from their suppliers.
Any squeeze on suppliers' margins will be passed down the chain, with consequences for plantation workers. "Do these guys not realise what they're doing to us?" said a spokesman for the Coordinating Body of Latin American Banana Workers' Unions. "They are putting all the costs of the 'crisis' in Britain on our backs."
Plantation workers have been feeling the effects of the price wars since the millennium. "Prices to suppliers are one-third lower than seven years ago and few plantation workers now earn anything like a living wage," said Alistair Smith, international coordinator with Banana Link, which campaigns for banana workers' rights.
Downward pressure on prices has been exacerbated by a gradual lifting of tariffs in the EU to comply with world trade agreements. As a result, the Latin American plantations, and an increasing number from West Africa that farm bananas on an industrial scale, are replacing higher-cost smallholders. The shift has been dramatic. Between 1992 and 2007, UK banana imports almost doubled from 545,000 tonnes to 927,000 tonnes. Over the same period, banana imports from Caribbean countries fell from 70% of all imports to less than 30%. Cheaper Latin American "dollar" bananas now make up about half of UK imports.
The Fairtrade Foundation has attempted to protect smaller growers by setting a minimum guaranteed price paid to its farmers. The system seemed to work with many shoppers prepared to pay a small premium to buy Fairtrade bananas. Sainsbury and Waitrose even switched all their bananas to Fairtrade – which means they have had to absorb big hits to follow Asda's price-cutting lead.
"We know shoppers are concerned about ensuring that farmers and workers are treated fairly, and want to do the right thing," Crowther said. "Seven in 10 say they will buy products on these principles if they are slightly more expensive."
But with Asda selling Fairtrade bananas for £1.29 a bag, the huge discrepancy between the price of Fairtrade and normal bananas is obvious. The consequences for the Windward Islands, which exports close to 200,000 tonnes to the UK each year, are catastrophic, according to Rose.
Rose accused the likes of Asda of "using our product for their own ends without any commensurate returns for farmers." He said: "People get the wrong idea this food can be produced this cheaply. It can undermine the whole question of fair trade."
His warning came on the day the government gave the Fairtrade movement a £12m grant to mark the 15th anniversary of its launch in the UK. Last year more than £700m was spent on Fairtrade goods in the UK.
"We want to make sure that we're also able to persuade other retailers to come on board and to offer Fairtrade products," said Douglas Alexander, the international development secretary.
But Rose said the actions of some of the supermarket chains now threatened to jeopardise the success of the movement. Pointing out that 85% of banana farmers in the Windward Islands were Fairtrade registered, he said: "The very viability and continuation of the industry is at stake and even the reputation of Fairtrade. If the industry collapses the uninformed are [unfairly] going to blame Fairtrade."
The price war has revived calls for an ombudsman to oversee the supermarkets' activities. This idea was proposed by the Competition Commission last year, but the supermarkets are lobbying against it. The business secretary, Lord Mandelson, must give his response to the commission's proposals by next month and aid charities are keen to up the ante before his decision. "The supermarkets have been found guilty of exploiting suppliers and the creation of an ombudsman is a sensible solution which the public would welcome," said Dominic Eagleton of Action Aid, which claims polls show eight out of 10 shoppers back the idea.
Ultimately, whatever Mandelson decides will be only a minor diversion in a seemingly inexorable narrative. In a globalised world, it will be the invisible hand of the market that is likely to dominate and as a result the supermarkets may one day end up reaping what they have sown. Asda's owner, Walmart, for example, has more than half the wholesale market in Costa Rica – now, thanks to the "race to the bottom", the biggest banana exporter to the UK.
"If those who supply supermarkets are not able to make a living, whether in Britain or on the other side of the world, then the consequences are unemployment and poverty," Smith said.
"This means those affected cannot afford to buy the products they need in the very same supermarkets that have put them out of business. These wars are not just pointless in the short term; for retailers in the long term they could be suicidal."
